Terrie on
Nonprofits ©
November 2005
Are
There Strings To What We Give Away at Events?
Q: We hold a fun-run and charge a
$25 registration fee (non-tax deductible) to enter
the event. I have two questions. First, if a participant receives a t-shirt ($8), a sports drink ($1), and a certificate
($0), is there a fair market value attached to these
items, or can they be placed under the registration
fee?
Second, is there a threshold
under which items which have minimal value such
as certificates or lapel pins may be given without
triggering the taxable-benefit issue?
A: Actually, you have three questions here, and
they are all good ones since they are ones with
which virtually every fund development professional
has to grapple.
As
I’m sure you are aware, fair market value is, in
simple terms, the amount that someone would have
to pay if s/he were to buy an item on the open market. Most things have a fair market value. In your example, the fair market value for the
items you listed here are likely to be $10 - $15
for the T-shirt (depending on the quality), $1 for
the sports drink and nothing for the certificate. This is different from your cost, which is probably
closer to the $8 you mentioned for the shirt, $.25
- $.75 per bottle of sport drink and $.10 - $.15
per certificate.
These numbers are needed if we are going
to assign a donation amount to monies received from
people, because the ultimate donation allowed by
the IRS is the total amount paid minus the value
of goods and services received.
The
IRS does allow an organization to provide benefits
of “insubstantial value” to donors without having
to go through the hassle of providing written disclosure
statements which specify the deductible portion
of contributions. Insubstantial value is defined as having a fair
market value not more than 2% of the amount of the
payment received from the donor, up to a maximum
of $83 (adjusted each year for inflation). This means that your runners would have to make
a donation of a minimum of $450 in order to legally
receive the $9 worth of giveaways, unless your organization’s
name or logo is on each of these things and your
aggregate cost is less than $8.30.
In that case, as long as someone makes a
minimum payment of $41.50 (again, this amount is
adjusted annually) you may provide the items without
worry.
Can
you afford to offer the t-shirt, sports drink and
certificate as part of your registration fee and
still cover the other costs associated with putting
on the fun run – those expenses for which you are
charging the registration fee in the first place?
If so, you don’t have to worry about which
portion is or isn’t tax deductible since you’ve
already indicated to the public that there is no
donative element in their registration fee. By doing so you’ve in essence told the participants
that they are paying for their goodies.
In my mind, that’s the cleanest way to go.
Best
of luck on the run!
Thanks to Christine Manor, CPA, MBA
for watching my back on this one.
Terrie
Temkin, Ph.D. is an internationally recognized governance
and planning expert. She is president of NonProfit
Management Solutions, Inc., a principal in CoreStrategies
for Nonprofits, Inc., and a longtime member of AFP.
Contact her at terriet@nonprofitmanagementsolutions.com,
954-985-9489, or 866-985-9489.
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